Zero-cost solar: Will this be Gillard’s election secret weapon?

Solar companies say the next big breakthrough in rooftop PV will be zero-cost solar leases. This is bad news for utilities, but a potential breakthrough for the Gillard government, preparing to fight the next federal poll on cost-of-living issues.

Australian solar installers are racing to become the first companies to offer long-term leasing arrangements that will allow householders to install large rooftop solar installations at zero up-front cost and hedge against rising electricity prices.

The move is being hailed as a potential game changer in the industry, whose growth has been arrested by sudden changes to feed-in-tariffs, but it could also have a big impact on established energy utilities, both generators and retailers, and has the potential of changing the political rhetoric as the next federal poll is fought on cost-of-living issues, mostly retail electricity prices.

Solar industry insiders say that the plunging cost of solar, which has fallen as much as 70 per cent by some estimates, is now presenting the opportunity for 20-25 year leasing deals for rooftop solar systems that require no money down and can act as a hedge against electricity costs, which are rising sharply, mostly because of grid infrastructure investment.

Jeremy Rich, the managing director of Energy Matters, a leading solar installer, said his company is working on a leasing product that it plans to launch soon. It expects to be quickly followed by others. These leases will likely be financed by private equity and high net worth individuals, and if successful is likely to be taken up by banks who could offer even more attractive rates.

“This could be a game changer for the industry,” Rich says. “You will have a product that shows savings from day one, there is no deposit down, you don’t have to redraw on the home loan.” It will also replace shorter-term repayment plans that have already been used.

Rich says that the most cost-efficient method for a household would be to redraw on mortgages – as pointed out by Ray Wills, the head of the Sustainable Energy Association of Australia, last year. However, Rich said leases offer simplicity and can be accessed by more people. They will be able to be structured in a variety of ways to offer more savings now, or into the future, as electricity costs rise further. And because the solar company is guaranteeing a service, it has to ensure the quality of the solar product.

Essentially, it is a similar model to that used by mobile phones, except that the leasing costs will be cheaper than what people would normally pay for electricity, so there is a demonstrated saving. The electric vehicle battery leasing model proposed by the likes of Better Place is based on a similar concept.

And it has been shown to work. In the US, leasing has taken off in the last two years, and nearly 75 per cent of rooftop solar installations in California are now based on leases with zero up-front costs, and the market is expanding fast.

One of the biggest players is SolarCity, which plans an IPO later this year that is expected to raise $1.5 billion. Google last year provided $280 million for its financing activities, while Bank of America provided it with $1 billion. Another major player, SunRun, sells 90 per cent of its products through leases.

“I would think that in times like now, when people are short of disposal income, and cost of living is going through the roof, any relief that consumers can get is going to be well received,” Rich says. Other products that will allow landholders and tenants to share the savings of rooftop solar are also believed to be coming to the market anytime soon, further expanding the percentage of the population that can benefit from rooftop PV.

But this has wider implications. A new surge in the deployment of rooftop solar in Australia could have an impact on generators, who are already worried about the impact it is having on their profits. As we highlighted in this story here, the impact on generator earnings in country with a large penetration of solar, such as Germany and Italy, is already dramatic, and AGL highlighted the potential for this to happen in Australia, which is why it is lobbying to slow down the growth in the solar industry in Queensland, the last state to have a significant feed in tariff.

And it will have implications for the energy retailers, because it marks the first concrete signs that the delivery of electricity to households is moving to a service-based industry, rather than commodity-based simply around the sale of electrons.

This trend is expected to accelerate in coming years with the rollout of electric vehicles and smart appliances, which mean that householders will be able to evolve from mere consumers to “prosumers,” who can generate their own electricity, store it, and control the quantity and time of their use.

Such a move poses huge challenges on the electricity retailers’ current business model and, as pointed out by numerous global surveys, it is not entirely clear that they are ready to adapt. Adding to the complication in Australia is the fact that our biggest utilities are “vertically integrated” and are generators as well as retailers. Not only do they face a double whammy effect, but any initiatives in one part of the business to address the issue could cause problems in the other part of the business. Network operators are at risk too of having stranded assets.

But another intriguing aspect is the potential of “zero-cost” solar to change the political rhetoric around energy costs and clean energy, which – in the lead-up to the next federal poll – is likely to be fought, for a large part, on electricity prices. Data already shows that solar PV has been most popular in the mortgage belt, but the availability of leases to households up and down the income chain kills the argument that solar PV is a form of middle class welfare.

Federal Labor is in desperate need for a new narrative. Simply saying that cost of living will be worse under Abbott is not sufficient: Labor needs to demonstrate that things can be better under Labor and the Clean Energy Future package, and this could be their opportunity, if they know how to seize it. The Clean Energy Future can indeed be clean, exciting (new technology), and cost a lot less than sticking with polluting fossil fuels.

The ALP can even claim that it is Labor policies that have helped bring this to reality: the renewable energy target, the solar multiplier, and the state-based feed-in tariffs (all introduced by Labor governments) have been the architects of the solar boom (even if some were so badly managed they cost more than they needed to and caused collateral damage to the wind industry). It should be remembered that the plunging cost of solar PV is only partially due to the dramatic slump in module prices for China. More than half the cost comes from “balance-of-system” costs such as installation, maintenance and finance, which are local issues that are reduced with greater deployment.

And they can argue that it is the conservative governments who have been winding back the tariffs at the behest of the vested interests in the energy industry, as revealed last week by AGL Energy, who boasted that it was mostly responsible for the decapitation of the state-based tariffs for fear its earnings would be adversely affected.

The arrival of zero-cost solar and a natural hedge against rising electricity prices fits in with the narrative of the International Energy Agency and most independent global assessment that clean energy will ultimate deliver cheaper energy. It’s just that no one expected it to come quite so quickly, and many still do not appreciate just how quickly costs are falling.

As David Crane, the head of the leading US utility NRG explained last week, the cost fall in solar PV is taking the global energy industry by surprise, and is the biggest game changer he has seen in his three decades in the industry. “One of the things I tell business is that if you evaluated rooftop solar a year ago, you are way out of date. If you did it three months ago, you are way out of date. Unless you can tell me you did it yesterday you should be re-running your numbers. The price has come down that far.”

The Australian government could facilitate the rollout by introducing a national feed-in tariff. As Rich points out, the fact that retailers in some states have no obligation now to pay for electricity exported from rooftop systems to the grid reduces the potential savings in a lease. A national FiT does not need to be very high or costly, it just needs to be consistent.

Sadly, the Australian government seems to working through a fog of misinformation, and Gillard’s office might send a few advisors over to Energy Minister Martin Ferguson’s office, to find out why they are so out of touch with the market.

The Draft Energy White Paper, released late last year, virtually ignores solar, mostly because it relies on advice from “independent” consultants, whose predictions for reductions in the cost of solar PV in 2035 are so laughably wrong that their forecasts are actually higher than the current cost in 2012.

This graph below highlights the problem. It was prepared by ACIL Tasman, one of the expert consultants on whom the energy department relies, on behalf of gas client, Santos. It predicts the energy mix out to 2035. Solar doesn’t exist.

Giles Parkinson is founder and editor of Renew Economy, and is also the founder of One Step Off The Grid and founder/editor of The Driven. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.

Giles Parkinson is founder and editor of Renew Economy, and is also the founder of One Step Off The Grid and founder/editor of The Driven. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.

20 Comments

You can’t credit them with all of this Giles, the RET, as the MRET was introduced by the Howard government, and the tampering with the RET by the solar multiplier effectively killed the incentives for other renewables in the RET. This was effectively bad policy based on bad advice, it’s pretty obvious that additional incentives for one generation type in particular should’ve been done separately.

Giles Parkinson 7 years ago

Hi Ken Glad to see the positioning for claiming credit has already begun. Yes, Howard started the RET, then killed it. The 20% MRET was Labor’s idea. And yes, this and other policies have been pretty badly implemented.

Beat Odermatt 7 years ago

Maybe the biggest news are actually coming out of Germany, where the Government want to close all nuclear power stations. It wants to replace nuclear power stations with mini-power stations based on ceramic fuel cells. Germany is aware that some power has to be generated during the night and that solar power may not be the only solution leading to an low carbon nuclear free economy. I understand that some technology actually developed in Australia may become the hottest new power player.

And when supply gas is coal seam gas rather than natural gas the fugitive emissions may well exceed the greenhouse effect of the CO2 from burning coal for equivalent power output.

Beat Odermatt 7 years ago

Eric, Thank you. It seems that these ceramic fuel cells may just be the “missing link” in our energy economy. They seem to reduce the “carbon footprint” and can use our plentiful gas supplies without the need for more massive power stations. Does the Commonwealth Government know about this?

Alastair L 7 years ago

Germany is paying Better Place in Denmark to take its overnight wind generated excess power, but there will probably be nights of low output all over Germany on occasion.

The zero cost solar idea is fantastic but maybe looking at energy efficiency as a whole is a more economical model in the long run.

As always people need to be given the best information to understand the situation and I fear that there is a danger of people thinking that they are producing free energy and actually consuming more.

-Lucy

Chris Fraser 7 years ago

The UK experience sounds similar to Australian Green Loans (2009 – 2010 RIP). I would further add the benefit of investing in the PV upgrade needs to be quantified by an accurate appraisal of the proposed PV investment. They tried to do make the energy assessments work in Australia, but there were allegedly problems with getting accurate results from the software.

Lucy Roberts 7 years ago

Hi Chris,

Yes the Green Deal scheme is similar to the Green Loans but the debt is attached to the energy bills of the property, rather than to the individuals or even to the property itself. So that future tenants or owners – who are benefitting from the changes to the property – are paying the loan off with their energy saving, rather than out of their pockets of having to pay more on a property that has already been improved. It makes it a much greater incentive for landlords to allow tenants to make changes or for them to actually do it themselves. It was my understanding (and I could be wrong) that the Green Loan scheme was an interest free loan held by individuals, so it would have been of greatest appeal to homeowners who intended to stay in their property long enough to reap the benefits. It seemed to be gone in such a flash that I hadn’t really got my head around it!

-Lucy

Bron Plarre 7 years ago

So Giles, when is the debate between yourself and Martin Ferguson happening? I’d give anything to hear it. Or maybe both of you on QandA!!! [Make sure one of us are in the audience.] 😉

Petra Liverani 7 years ago

The Draft Energy White Paper ignores both PV and solar thermal. It sees electricity in our lavishly sun-blessed country in 2050 being provided by “3% large-scale solar”, not even specifying the amount of each solar technology. Unlike PV, solar thermal with salt storage can provide baseload or, rather better, dispatchable power. That this paper does not apportion a significant share to the one renewable energy that can give us a 24/7 supply is breathtakingly ludicrous. Not only is the amount stupidly tiny from a supply point of view but you miss out on the economies of scale. However, 26-32% of our electricity could be supplied by fossil-fuels with carbon, capture and storage (CCS) – according to the DEWP – despite the fact that CCS is not used anywhere in the world at the moment and if it ever did work it is very unlikely that it would be able to compete with renewable energies as their prices continue to drop. Nor is it a technology amenable to scaling up. As the submission by the Clarence Environment Centre states “…we have found the Paper to be the most frightening document we have ever had to assess.” The only consolation is that there’s a snowball’s chance in hell that the DEWP “vision” could ever be a reality.

ken waite 7 years ago

Thanks Giles,

The zero cost leasing agreement seems to be the next big step in solar pv. Particularly with those on lower incomes. As you say very few politicians are aware of how fast the technology is going re: efficiency of panels through things like better terminals, etching to increase absorption of light, vapour deposition of silicon – the list goes on. Installation costs are coming down with better fittings, lighter panels etc.

The challenge for Labor – having survived 18 months in a hung parliament that many journos were saying would only last a few weeks – is to get the best advice on the latest developments and reject the ridiculous White Paper out of hand.

Could you do another artlicle which explains some of the leasing agreements of the Californian situation. I have questions like – what happens if the house is sold within the lease time agreement? Have there been major problems with shonky installers? What is the feedback from lessees?

cheers

Chris 7 years ago

Looking at that chart at the bottom – I think the reason there’s no solar power is that it says NEM electricity generation. I presume that means the mix of energy sold in the NEM. Rooftop solar PV is not sold into the NEM is it? That being said, by 2035 there could well be a solar power station selling to the NEM, although it’s all a bit speculative, isn’t it?

Giles Parkinson 7 years ago

I’ve talked to most renewable energy developers – involved in wind and solar – and they agree that utility scale solar PV will be matching wind on costs from 2016/17/18, which means a gigawatt or two at least of utility scale solar PV by 2020 – some say 5GW or more and increasingly rapidly thereafter. The ACIL Tasman report ignores even the basic cost comparison between wind and solar.

Beat Odermatt 7 years ago

This may be of interest. I copied it form the Ceramic Fuel Cell (CFU) website. It seems that Germany is looking forward into the future instead of spending more money on nukes and coal. “Tuesday 3 April 2012 Germany Introduces Capital Subsidy formCHP Products Ceramic Fuel Cells Limited (AIM / ASX: CFU) – a leading developer of high efficiency and low emission electricity generation products for homes and other buildings – is pleased to announce that the German Federal Government has introduced a capital subsidy for micro power and heating (mCHP) products, including Ceramic Fuel Cells’ products. From 1 April 2012, subsidies are available for eligible mCHP products which generate up to 20 kilowatts of electricity and meet demanding performance requirements, including a total efficiency of at least 85 percent. Ceramic Fuel Cells’ BlueGen and integrated mCHP products will receive a subsidy of 1,800 Euros per unit. The subsidy is available to the end customer who installs the mCHP product. The subsidy program is administered by the Federal Office of Economics and Export Control (BAFA), which is part of the Federal Ministry of Economics and Technology (BMWi). This program is in addition to the existing German CHP Law, which requires that 25 percent of Germany’s electricity generation comes from combined heat and power (small and large scale) by 2020.”

Giles, yes I had a look. Why can’t we keep politics out of the environment and teach our leaders that we have the year 2012 and not 1912.Here in South Australia we had a small minority which managed to be so much in the backside of Origin Energy to stop a new wind power scheme.I am sure these people have never lived in a coal mining town or worked in coal mine, otherwise they would support wind power.

Wow – no wonder the State Liberal governments in Queensland, Victoria, and Western Australia are doing their darndest to stall the progress of wind and solar energy!

No wonder Abbott and co are in a frenzy to try and bring down the Gillard government, preferably before July 1st – when some of the advantages of renewable energy are gong to become apparent to the Australian public – despite the obfuscations by the Murdoch press, and by the likes of Clive Palmer and Gina Rinehart, and Ivan Glasenberg.

Nick 7 years ago

British Gas, in the UK, launched a no-cost Solar leasing scheme in 2010. Robert Llewellyn, the actor who played Kryten in ‘Red Dwarf’ and is now a keen solar-ist and who now produces his own green-energy show on youtube, called ‘Charging point’, had one of these systems installed last year, and made one of his shows about it.